How to Outsource the Core Without Giving Up Control

In the fourth article in our series on core modernization efforts, we hear from a community bank that has transformed its back office by outsourcing its core platform without losing control over vital functions.

Financial institutions are evolving. Being able to quickly adjust to changing consumer behavior is a hallmark of a successful bank. Of course, the banking core platform must be able to support this dynamic. Outside of M&A, no other decision has the power to influence the success of a bank as much as a core data processing overhaul. And for many banks a core decision will be the largest project undertaken in the life of the institution.

For the past five years, banks have had a laser-like focus on addressing the challenging credit and lending environment, meeting increased regulatory pressures and replacing lost fee income. Moving the core to a third-party managed environment allows institutions to uncover efficiencies and utilize resources to the maximum ability.

For Michigan-based Lapeer County Bank and Trust, it was a perfect storm that led to their decision to outsource the existing in-house I-series AS400 to Jack Henry Banking’s CIF 20/20® OutLink Data Center™.

Making the Switch

We have been on the CIF 20/20 platform since 1997. While no one looks forward to a core conversion, we were seeking an environment that would automate what was previously manual, free up resources and drive efficiencies across the board. With only one person dedicated to handling all upgrades and hardware maintenance in an increasingly complex technology world, it was imperative that we outsource our core platform management. For those community institutions with fewer dedicated on-site employees and resources, outsourcing provides access to infrastructure and a more sophisticated processing environment, which eliminates the significant capital expenditures required for in-house installations, the need for resident resources to operate and manage in-house data center operations, as well as long-term capacity planning.

After conducting an extensive due diligence process, the bank decided to continue our relationship with Jack Henry and move to the company’s OutLink Data Center option. We had been happy with our CIF 20/20 core for more than 15 years and staying with the platform would streamline the conversion process while alleviating any down time due to training. Our teams worked together to ensure a “piece of cake” conversion -- we were up and running by 11a.m. on Saturday morning with no interruption to any customer-facing functions. The Jack Henry team planned for, monitored, and exceeded deadlines in order to make the migration seamless.

Since converting to an outsourced environment, we have found nearly $150,000 in savings, freed up three full time employee positions through attrition and are able to maintain normal working hours. Our bank has been able to reallocate the $150,000 saved from outsourcing to the retail mortgage side of the house. Reallocating resources has been a fundamental shift in the way the bank’s back office works.

Employees no longer have to work after closing, come in on weekends to manage a core release, or on New Year’s Eve for year-end. Furthermore, in-house staff can be more knowledgeable in specific areas and take ownership of their applications because they no longer have to manage day-to-day IT functions. It was an unexpected but welcome surprise. We have been able to spread ownership across the organization. Down the line staff can now call a JHA representative in tech support for questions outside of their specialty.

The success we have seen by migrating has influenced our banking colleagues as well. We have been happy to host several inquiring institutions to demonstrate how smoothly our back office runs and hopefully, to dispel some misconceptions about outsourcing. We haven’t lost control over vital functions, nor have we lost the ability to provide the same features, products and solutions our customers expect. Our bank manages all the parameters within the core, but have been able to move a lot of tedious, manual operations offsite. Who really wants to control if the printer/hardware connection is working?

Outsourcing has long had a valuable role in many banks’ IT strategies. Today, the forces driving outsourcing – and the benefits gained from a successful provider partnership – are greater than ever. With outsourcing, financial institutions can not only benefit from lower costs, but also gain access to the latest technology and a more sophisticated infrastructure and processing environment. Additionally, in today’s compliance-focused environment, outsourcing shifts much of the compliance burden to the provider, while providing banks and their customers with powerful security, disaster recovery and business continuity resources.

We have been very happy with the decision to outsource. Our bank hasn’t given up control over the functions of the bank, or forgone offering competitive solutions, we’ve simply moved the tedious, monotonous tasks to Jack Henry Banking, while keeping the good.

As mentioned in the article as well as by several comments I fully agree that always ensuring a proper governance and always being in control is key in any outsourcing project. But in order to be effective in keeping costs low as well as being fast I think automation in governance is vital. This is why we have started a SaaS startup providing exactly that (for offshore/nearshore SW projects, nothing specific to banking): www.plixos.com

Yes that's something that seems to have changed in the last year or so. The barriers that used to exist for larger institutions when it came to the cloud and outsourcing solutions, such as security issues and bandwidth of cloud providers, are slowly being addressed by the providers. Starting to see more big banks interested in this.

Not only will smaller banks continue to outsource key parts of their technology stack, but larger firms will begin to see the benefits as well. Even large firms can potentially cut costs and improve service by moving legacy applications to newer, outsourced/cloud solutions.

More and more community banks are going to have to outsource key parts of their technology going forward to stay competitive and this issue of outsourcing without losing control of key technology functions will grow long with that.